OCEANSIDE — About a month after the passage of Measure M, City Council set initial tax rates for cannabis businesses within Oceanside.
Measure M asked voters to establish a cannabis business tax that the city would collect from its licensed cannabis businesses. The measure passed in the November election with a 61.78% majority vote.
The newly sworn council officially set the tax at its Dec. 16 meeting.
Oceanside currently only has one active cannabis business, which is MedLeaf, a delivery-only service. A cannabis product manufacturer known as Left Coast is expected to start running soon as well.
The tax would apply to both recreational and medical cannabis businesses, though Oceanside currently only allows for medical cannabis operations.
Proceeds from the tax could be used for any lawful general government purpose, including enforcement against other illegal cannabis businesses.
Oceanside and Vista are so far the only two North County cities that have set cannabis business taxes. Other San Diego County cities with cannabis business taxes include San Diego, Chula Vista and La Mesa.
The city hired HdL consulting firm to prepare a fiscal analysis and a potential tax structure. They determined a range of tax rates for the different types of cannabis businesses that would generate significant revenue without overburdening the city’s fledgling cannabis industry.
“I think we have adopted a fairly reasonable and successful way of regulating these businesses, and I think if we set a tax that is too burdensome those businesses that are trying to be good neighbors and follow the law are going to get sidelined for the illegal operations,” said Deputy Mayor Ryan Keim.
Manufacturing cannabis businesses have a tax rate of 2.5%, distributors and nurseries both at 2%, cultivation at 1.5% and retailers at 5%. Originally staff recommended a 4% rate for manufacturers, 3% for distributors and 2.5% for cultivators, but Council lowered those initial rates as Councilmembers Peter Weiss and Chris Rodriguez suggested.
HdL estimated that annual revenues could reach $1.4 million based on these initial tax rates and the city’s anticipated number of cannabis businesses, but that figure is dependent on all the businesses being open, and the city isn’t sure when exactly that will happen.
Gossman explained that initial revenue is expected to be low but will grow over time as more businesses open.
Council is able to go back and adjust the tax rates within their specified ranges, which is 2.5-6% for manufacturers, 2-6% for distributors and nurseries, 1.5-3.5% for cultivators and 4-6% for retailers.
The cultivation tax is subject to an annual adjustment rounding up to the nearest cent based on the year-over-year percentage change in the Bureau of Labor Statistics San Diego Metropolitan Area Consumer Price Index for All Urban Consumers (CPI-U).
Businesses must register with the city prior to beginning operation and must also pay a registration fee to cover the city’s cost of implementing the tax.
Violating the new tax provisions would be considered a misdemeanor.
The new tax goes into effect on Jan. 1.